WHY NATION TRADE
The sale of goods and service is not restricted to local, regional,
or national markets, it often takes place on an international basis. Nations import
goods that key lack or cannot produce as efficiently as other nations, and they
export goods that they can produce more efficiently. This exchange of goods and
services in the world, or global market is known as international trade. There are
three main benefits to be gained from this type of exchange.
First, international trade makes scarce goods available to nations
that need or desire them. When a nation lacks the resources needed to produce
goods domestically, it may import them from another country. For example, Saudi
Arabia imports automobiles; the United States, bananas; and japan, oil.
Second, international trade allows a nations to specialize in
production of those goods for which it is particularly suited. This often
results in increased output, decreased costs, and a higher national standard of
living. Natural, human, and technical resources help determine which products
nation will specialize in. Saudi Arabia is able to specialize in petroleum it
has necessary natural resource; Japan is able to specialize in production of
television because it has the human resources required to assemble the numerous
components by hand; and the United State is able to specialize in the computer industry
because it has the technical expertise necessary for design and production.
There are two economic principles that help explain how and when
specialization is advantageous. According to the theory of absolute the
advantage, a nation ought to specialize in the goods that it can produce more
cheaply than its competitors or in the goods that no other nation is able to
produce. According to the theory of comparative advantage, a nation ought to
concentrate on the products that it can produce most efficiently and
profitably. For example, a nation might produce both grain and wine cheaply,
but it specialize in the one which will be more profitable.
The third benefit of international trade is its political effects. Nations
that trade together develop common interest which may help them overcome
political differences. Economic cooperation has been the foundation for many
political alliances, such as the European Economic Community (Common Market)
founded in 1957.
International trade has done much improve global conditions. It enables
countries to import goods they lack or cannot produce domestically. It allows
countries to specialize in certain goods with increased production and
decreased prices. Finally, it open the channels of communication between
nations.
MULTINATIONALS AND THE THIRD WORLD
Multinational are large international companies which produce goods
in several countries. Some well-known ones are Ford, Shell, Coca-Cola, Sony,
and Unilever. Their turnover is huge, being greater in some cases than the
national income of countries such as Switzerland or the Netherland. Because they
are so big they attract a lot of attention. Usually their business methods are
carefully watched by foreign governments.
People are particularly interested in their activities in poor and
developing countries. They ask the question: How have multinationals improved
the economies of these countries? In reply, a manager working in a multinational
will say something like this:
“Well, for a start, we provide the capital which poor countries
need for their economic growth. The point I’m trying to make is that our
capital, together with local savings, finances their industries. Another thing,
we share our technology with local business – we introduce our scientific and
technical methods to them. And they increase the productivity of their workers.
Don’t forget also that we produce a wide variety of goods. And let’s
face it, we employ thousands of people all over the world. No one can accuse us
of not playing goods wages. So, I think you’ll agree, we’re responsible for
raising living standard.”
Critics of multinationals do not accept such arguments. They say
that the big corporations are not major supplier of capital. In Latin America,
for example, multinational have mostly used capital provided by local banks and
investors, and have not brought in capital frome the United State and Europe. Because
of this, there is a shortage of money to finance local business. Foreign firms
have taken the lion’s share of the available capital.
The critics agree that multinationals introduce new technology. However,
it is often unsuitable for developing countries. The imported technology is too
expensive and complicated. It has been developed for industrial societies, not
for poor countries. In agriculture. For instance, most countries don’t need
tractors, which are expensive to buy and operate. They need better hoes and
ox-ploughs.
Another disadvantage of the new technology is that it will probably
reduce jobs. Generally it is labour saving. This is because it comes from the
United State and Europe where wage costs are high. Poor countries can do
without such technology. They have large numbers of workers looking for
employment.
